Mortgage insurance can be a significant expense for homeowners, especially for those who put down less than 20% on their home purchase. However, homeowners in the U.S. may have the option to cancel their mortgage insurance under certain conditions. Understanding these conditions is essential to alleviating this financial burden. Here’s how to determine if you can cancel your mortgage insurance.
1. Know What Type of Mortgage Insurance You Have
Before you can begin the cancellation process, it's important to identify the type of mortgage insurance you have. There are typically two types: Private Mortgage Insurance (PMI) and Federal Housing Administration (FHA) mortgage insurance. PMI is usually applicable for conventional loans, while FHA loans require mortgage insurance premiums (MIP). The rules for cancellation differ, so knowing which one applies to you is the first step.
2. Review Your Loan Balance
One of the primary criteria for canceling mortgage insurance is the loan balance. For conventional loans with PMI, you can usually cancel your mortgage insurance once your loan balance reaches 80% of the original appraised value of the home, based on the original purchase price. You can calculate your current loan balance by checking your latest mortgage statement.
3. Check Your Home’s Current Market Value
If you believe your home has appreciated significantly since you purchased it, consider getting a new appraisal. If your home’s current market value has increased, it may allow you to reach that 80% threshold sooner than you realize.
4. Verify Timing Requirements
For PMI, lender requirements usually stipulate that you must have made on-time payments for at least two years before cancellation is considered. Be sure to review your loan documents or check with your lender to understand their specific requirements. In contrast, FHA loans might have different stipulations, often requiring you to pay MIP for the life of the loan unless you refinance.
5. Declare Your Request in Writing
Once you’ve confirmed your eligibility to cancel your mortgage insurance, you need to formally request the cancellation from your lender. Provide necessary documentation such as your loan balance, any new appraisal results, and proof of timely payments. Keep copies of all correspondence for your records.
6. Monitor for Changes in Regulations
Laws and regulations regarding mortgage insurance can change. It’s essential to stay informed about any updates that may affect your ability to cancel your mortgage insurance. The Consumer Financial Protection Bureau (CFPB) often provides resources to help homeowners understand their rights.
7. Consider Refinancing Your Mortgage
If your current mortgage doesn’t allow for easy cancellation of mortgage insurance, refinancing may be a viable option. A new mortgage could provide a chance to eliminate mortgage insurance altogether, especially if your home value has increased since your original purchase. However, consider the costs associated with refinancing before proceeding.
By taking these steps to evaluate your eligibility, you may be able to successfully cancel your mortgage insurance, resulting in significant savings over time. Always consult with your lender and consider speaking with a financial advisor to ensure you make the best decision for your financial situation.
